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 If
the Indian IT industry continues to grow, a few large players, especially
those that are merely banking on past performances and goodwill,
are bound to falter, believes MOHAN BABU
Indian IT majors are beginning to project a uniformly
optimistic view of the forthcoming fiscal year. Case in point, Infosys,
during its first quarterly announcement (Y 2005) painted an extremely
rosy picture of its growth, setting the expectation for about a
40 percent growth during the coming fiscal year. Two major factors
contributing to this buyout outlook include subsiding ruckus over
outsourcing and the strengthening of US dollar (against the Rupee).
The resilience shown by the American economy, which incidentally
accounts for a large percentage of Indian IT exports, is also helping.
The signs of optimism are everywhere in the Indian IT landscape,
ranging from statements emerging out of executive interviews to
optimistic reports from industry bodies like Nasscom. Behind all
the signs of optimism, however, there are a few voices of concern
over the trends shaping up.
A leading Indian business in a recent article
set a cautious tone with the following remark “Finally, in
the very success of the Indian IT companies lies the seeds of a
future tragedy. The stocks have appreciated significantly in the
past 12 months, so much so Infosys, Wipro and Cognizant all trade
for more than 35 times the calendar 2004 earnings estimates. This
means investors need to pay even closer attention to the risks.”
The article went on to analyse various issues, including attrition
at top Indian companies and added, “IT biggies like Wipro and
Infosys are not only losing people at the entry level, but also
experienced professionals at the middle and senior management level.
The top Indian IT companies starting to lose key software developers,
project managers and high level executives to leading US tech companies
such as IBM, Oracle and Accenture.”
I began to think of some of the issues raised
by the article and exchanged notes with some of my knowledgeable
peers who had an insight into the trends in the Indian IT industry.
One friend responded saying that he believed that the churn at the
middle/top levels in Indian companies might in fact turn out to
be a blessing in disguise since it would lead to more opportunities
for juniors to move up. He also felt that for the kind of work being
done by a majority of software services companies, most people weren’t
indispensable.
The vacuum created by the exit of a few senior
project managers or a delivery head are routinely being filled by
eager second-line managers. More than a conscious risk mitigation
strategy, the existence of a ‘pyramid structure’, coupled
with aggressive hiring during the past few years has ensured an
abundant supply of talent in many of the large organisations.
Another factor propelling Indian IT is the fact
that the business is “highly commoditised” and the business
models of most large software service organisations have been built
around economies-of-scale. It also helps that the sheer momentum
created by stratospheric growth during the late nineties has lead
to sufficient inertia to sustain the current pace of growth. The
fact of the matter is that the growth has definitely “slowed”
from ninety or hundred percent during the late nineties to thirty
and forty percent growth the industry is currently experiencing.
This relative slowing of growth has by no means deterred investors
for whom a forty percent growth is still hugely appealing; the Indian
IT industry still promises higher returns and growth than most other
sectors.
Issues like high rates of attrition are also
moot since attrition in one or two companies leads to a widening
depth of the overall talent pool available in the industry. Added
to this is the ‘reverse brain drain’ of Indian NRIs and
technologists overseas who are not just observing the trends but
are also beginning to return back to partake in growth. At a macro
level, Indian IT is bound to see a sustained rate of growth, regardless
of the issues faced by individual players.
And, this is where I would like to end my discussion
of this topic by wondering aloud: “If the Indian industry continues
to grow, a few large players—especially those that are merely
banking on past performances and goodwill—are bound to falter.
What would it take to trip the 800 pound gorillas that are merely
moving because of sheer inertia?” Any thoughts and comments
on this are more than welcome.
Mohan Babu is a US-based software consultant
trying to find the ‘sweet spot’ where IT meets business.
E-mail: mohan@garamchai.com
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